The difference between a good day and a bad one can be vanishingly small. In mid-September, Main lost a commission to a competitor who bested him on price by 0.0002 percentage point on 175,000 eurodollar contracts.

Prosecutors said Mr. Salman and an associate generated more than $1.5 million in profits by trading on tips about coming acquisitions of biomedical companies involving Citigroup clients. Mr. Salman had contended that because there was no compensation or other personal benefit exchanged for the tip, he couldn’t be prosecuted.

For babies born in 1980 — today’s 36-year-olds — the index of the American dream has fallen to 50 percent: Only half of them make as much money as their parents did. In the industrial Midwestern states that effectively elected Donald Trump, the share was once higher than the national average. Now, it is a few percentage points lower. There, going backward is the norm.

If you were to ask for the growth of Managed Futures assets in 2015, you might get different answers depending on who you ask. Barclayhedge will tell you $8.5 Billion, we think that number is more about $10.5 Billion, and a third party recently made the claim of as high as $30 Billion at a recent conference. Being the Managed Futures nerds that we are, this certainly caught our interest.

overheard at @hfmweek chicago summit – of Record $30 Billion new assets into ctas in 2015, $27 billion into just 8 managers

We’ll take the speaker at his word and assume those numbers were based on some hedge fund inflows report or another – but it got us to thinking of how much of the total assets (not just inflows) are controlled by the largest firms. Back in 2013, we discovered the 35 largest CTAs controlled 65% of the AUM, and it turns out it’s only gotten worse.

To find the answer this time round, we took all of the managers in the Barclayhedge managed futures database that have reported returns in 2016, then removed distinctly non managed futures hedge funds ,aka Bridegwater, to arrive at a universe 263 managers controlling 733 programs. We then summed up the assets to see just how top heavy the space is.

The answer is… it is very top heavy, with the top 5% of managers (just 13 firms) controlling 66% of the total assets, $166 Billion. By the time you get to the top 20% of managers, there’s only $19 Billion left in AUM for 210 managers. Here’s the breakdown:

This isn’t a new problem… but it does seem to be getting worse, with the largest managers checking the right boxes to get the largest allocations in a self-fulfilling circle, leading all the way to the bank. Investors, meanwhile, may be doing themselves a disservice in boxing themselves into a smaller and smaller universe of managers who can meet asset thresholds and stringent operational due diligence tests, forgetting perhaps – that bigger is not better in the managed futures space – with bigger leading to problems in terms of market impact, position limits, and tradeable markets (larger managers portfolios tend to be more heavily skewed towards financial instruments away from commodities).

At the same time, we’re hearing from more and more investors that they desire emerging managers and the often higher returns they can offer (even if it comes with a wider dispersion of returns – more on that in an upcoming whitepaper). But that’s not what’s happening according to the stats. According to the stats, that seems to be just lip service and a ‘wish’ of large investors instead of an actual allocation plan.

For now, we seem destined to watch the largest managers continue to get larger until…. something like – closures, performance flattening, underperformance due to financials exposure, etc – happens to shift investors wallets, not just their mindsets.

Renaissance’s success, of course, ultimately lies with the people who built, improved upon, and maintain Medallion’s models, many of whom met at IBM in the 1980s, where they used statistical analysis to tackle daunting linguistic challenges.

The Commodity Futures Trading Commission voted unanimously Monday to float, for the third time since 2011, a proposed rule that would cap the size of trading positions firms could take in more than two dozen core commodity contracts, including a variety of energy and precious-metals commodities, to curb any one trader’s influence.

We mean the worst month in history for the the Bloomberg Barclays Global Aggregate Total Return Index, a bond market index that’s more than two decades old.

Odd Lots: Was November the Start of a Huge Turning Point In Markets? – (Bloomberg)

The moves by CME Group Inc. and Intercontinental Exchange Inc. come as increasing shipments of liquefied natural gas from the U.S. and elsewhere have helped create a spot, or short term market, for this commodity, which is transported on ships in liquid form.

Half the money will go to a fund run by Renaissance Technologies, the firm founded by Jim Simons, as the school unwinds its investments mostly from long-short hedge funds, said Chief Investment Officer Philip Zecher. Michigan State is switching strategies for part of the allocation, including its first deployment in quantitative funds, rather than abandoning hedge funds.

When the Federal Open Market Committee finally raised rates to the 0.25% to 0.50% last December, it was the first time in seven years. Indeed, the fact that we just quote those minuscule rates and a range instead of fixed level shows just how different a rate environment we ended up in after those seven years. Now, in eight days, the FED have the opportunity to raise interest rates for the second consecutive December (so much for raising in back to back meetings as used to be the norm), and it appears as though everyone’s banking on a Rate Hike. A quick look at the CME’s FedWatch Tool shows the Fed Funds futures implying there’s a 92.7% percent chance of rate moving to 0.50%-0.75%.

(Disclaimer: Past performance is not necessarily indicative of future results)
Source: CME Group

Now, this is the implied probability of a rate hike as expected by traders of the Fed Funds futures, but that’s a mouthful for reporters, who usually just throw out the percentage probability without providing context. In a year where predictability seems unreliable, we all deserve to know where the CME gets these numbers and how they draw these conclusions. Believe it or not, these numbers come from a futures contract. Not just any futures contract, but a Fed Futures contract or the technical name = the 30-Day Federal Funds Futures Contract.

Like the EuroDollar, the contract is quoted as 100 minus the interest rate, meaning the current December 2016 contract price of 99.460 allows hedgers/speculators to “lock in” a Fed Funds rate of 0.54%. As a reminder, the Fed Funds rate is the average rate charged by banks loaning each other money through the federal reserve system.

Now here’s where it gets tricky, because while the financial system takes its cue from the fed funds rate, they won’t necessarily adjust all of their interest rates up/down by that same amount. Long term rates might stay the same, short term rates rise more than that or any combo in between. The difference between the rates at all of those different maturities is what’s called the ‘curve’, and it can flatten or steepen depending on what short term rates like the 30 day Fed Funds rate are doing in relation to interest rates on longer term instruments like the 30 year bond. It’s also the reason there are all sorts of interest rate futures contracts spanning the time periods on this curve, as there are some who need more risk granularity (did we just coin a term?) than the 30 yr bond or Eurodollars futures can offer. There’s those who need to have a direct hedge on the fed funds rate itself.

How does this affect me?

It affects… well everything. Ignoring the actual pricing of bond yields and the price of stocks and bonds reacting to new rates, it affects more than you think. If you’re buying a car or a home anytime soon, it might be wise to get the deal done before rates go higher. Same goes for expanding your house – or businesses taking out loans to expand. Here’s a nice list, via our infographic.

How will this affect Stocks/ Bonds?

Now to the how this affects the markets. Just before the last interest rate hike, we computed how much stocks and bonds moved months before and after the start of the rising interest rate cycles.

It’s not a pretty picture if you’re in a 60 stocks / 40% Bonds portfolio.

Of course, past performance is not necessarily indicative of future results. For one, previous interest rates cycles have never started this slow (with nearly 12 months between decisions to raise rates). But The Wall Street journal has a neat tool to show how a rising yield what affect government bonds both in the U.S. and abroad. For instance, if the yield moved up to 0.30% next week — this is what it would do to bond prices.

We’re entering an interesting moment in the markets – with the U.S. Dollar trending higher, interest rates moving up, and stocks at all-time highs. We won’t say anything bad about stocks, but it appears bonds are no longer in a 30 year bull market (although the street is littered with failed trades trying to correctly pick the exact timing of that move). Better to trend follow that move, in our opinion, something which has been painful throughout the past few years of false breaks higher in rates. If this move has some legs, we could be in for some good times ahead for trend following models designed to capture such moves.

The hallmark of a good investor realizes that the rules do apply to them and they own the fact that they are no more gifted or special than the next person. Most investors tend to leave about 50% of their profits on the table due to bad emotional decisions

Say what you will about hedge fund managers, but, at the end of the day their net worths and livelihoods depend almost entirely on their investments in their own funds. The same is true of private equity titans and the CEOs of most public companies.

Outflows from the SPDR Gold Shares exchange-traded fund (GLD) — far and away the largest exchange-traded commodity fund by assets — have totaled nearly $1.4 billion over the five sessions ending Friday

Investors Flee Gold Fund at Fastest Pace in Over Three Years After Trump Win – (Bloomberg)

Oil futures rallied Thursday in the wake of OPEC’s production-cut deal, with West Texas Intermediate crude topping $50 a barrel to end at a six-week high and Brent crude logging its best finish since August 2015.

Industrial metals rallied almost 30 percent in 2016 as demand stabilized in China, U.S. President-elect Donald Trump pledged to invest in infrastructure and revitalize the U.S. economy, while mine closures curbed supply.

“If the government did acquire one of these companies or even became an investor in one of these companies, that investment could be called back to the holding company and whoever that investor or company was, would be kicked out of the group,” he said.

Just for Fun:

The holidays will be much happier for families of 1,500 workers at Exelon Corp.’s Clinton and Quad-Cities nuclear power plants after the Illinois General Assembly voted Thursday to approve an energy policy overhaul that will keep the plants open for another decade.

With its proximity to the Arctic, Alaska is warming about twice as fast as the rest of the United States and the state is heading for the warmest year on record. The government has identified at least 31 Alaskan towns and cities at imminent risk of destruction, with Shaktoolik ranking among the top four.

A Wrenching Choice for Alaska Towns in the Path of Climate Change – (New York Times)

It’s a similar story in Alaska, which had the nation’s third-highest per capita tax revenue in 2014 (Vermont was No. 2). Severance taxes account for a whopping 72 percent of Alaska’s tax revenues.

But as we looked into the deal, and others like it, we began to realize how little we knew about the U.S. government’s assistance budget, which ranges from programs combating HIV/AIDS to those directly funding other nations’ armed forces.

Everything you ever wanted to know about the U.S. foreign assistance budget – (Washington Post)

The Netherlands and Belgium, with their royals in attendance, on Monday signed a deal for a peaceful exchange of land between them for the mere fact that it makes sense to do so.

The size of a large caribou herd in Alaska’s Arctic region has dropped by more 50 percent over the last three years, and researchers who have tentatively ruled out hunting and predation as significant factors for the decline are trying to determine why.

What is a flower like from a bee’s perspective, and what does the pollinator experience as it gathers pollen? And that’s why we’re talking to you in the second person: to help you understand how bees like you, while hunting for pollen, use all of your senses — taste, touch, smell and more — to decide what to pick up and bring home.

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DISCLAIMER

Forex trading, commodity trading, managed futures, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors. You should not rely on any of the information as a substitute for the exercise of your own skill and judgment in making such a decision on the appropriateness of such investments.

The entries on this blog are intended to further subscribers understanding, education, and - at times - enjoyment of the world of alternative investments through managed futures, trading systems, and managed forex. Unless distinctly noted otherwise, the data and graphs included herein are intended to be mere examples and exhibits of the topic discussed, are for educational and illustrative purposes only, and do not represent trading in actual accounts. Opinions expressed are that of the author.

The mention of specific asset class performance (i.e. +3.2%, -4.6%) is based on the noted source index (i.e. Newedge CTA Index, S&P 500 Index, etc.), and investors should take care to understand that any index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship and self reporting biases, and instant history.

The performance data for various Commodity Trading Advisor ("CTA") and Commodity Pools are compiled from various sources, including Barclay Hedge, RCM's own estimates of performance based on account managed by advisors on its books, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

The mention of general asset class performance (i.e. managed futures did well, stocks were down, bonds were up) is based on RCM’s direct experience in those asset classes, estimates of performance of dozens of CTAs followed by RCM, and averaging of various indices designed to track said asset classes.

The mention of market based performance (i.e. Corn was up 5% today) reflects all available information as of the time and date of the publication.

The owner of this blog, RCM Alternatives, may receive various forms of compensation from certain investment managers highlighted and/or mentioned within the blog, including but not limited to retaining: a portion of trade commissions, a portion of the fees charged to investors by the investment managers, a portion of the fees for operating a fund for the investment managers via affiliate Attain Portfolio Advisors, or via direct payment for marketing services.

Managed Futures Disclaimer:

Past Performance is Not Necessarily Indicative of Future Results. The regulations of the CFTC require that prospective clients of a managed futures program (CTA) receive a disclosure document when they are solicited to enter into an agreement whereby the CTA will direct or guide the client’s commodity interest trading and that certain risk factors be highlighted. The disclosure document contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA.

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Disclaimer

Forex trading, commodity trading, managed futures, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors.
The mention of market based performance (i.e. Corn was up 5% today) reflects all available information as of the time and date of the publication.